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On November 17, Fannie Mae reissued LL-2021-07 to provide updated requirements for servicers when evaluating a borrower for a Covid-19 payment deferral offer. The updated lender letter was originally published in November 2020 and updated in February 2021 (covered by InfoBytes here). Specifically, the revisions update requirements related to performing an escrow analysis, and require single-family servicers to: (i) perform an escrow analysis when evaluating borrower for Covid-19 payment deferrals; (ii) “inform the borrower of the full monthly contractual payment based on repayment of any escrow shortage amount over a term of 60 months before the borrower can accept the COVID-19 payment deferral offer”; and (iii) “spread any escrow shortage repayment amount in equal monthly payments over a period of 60 months, unless the borrower decides to pay the escrow shortage amount in a lump sum up-front or over a shorter period (not less than 12 months) for a COVID-19 payment deferral or a Flex Modification for COVID-19 impacted borrowers.” Changes apply to a Fannie Mae Flex Modification and a Disaster Payment Deferral and will be incorporated into the Servicing Guide in February 2022. The provisions in the lender letter are effective until further notice. Fannie Mae encourages servicers to implement these policy changes immediately but no later than March 1, 2022.
On November 10, the OCC, Federal Reserve Board, CFPB, FDIC, NCUA, and state financial regulators issued a joint statement announcing the end to temporary supervisory and enforcement flexibility provided to mortgage servicers due to the Covid-19 pandemic by the agencies’ April 3, 2020 joint statement. As previously covered by InfoBytes, the April 2020 joint statement provided mortgage servicers greater flexibility to provide CARES Act forbearance of up to 180 days and other short-term options upon the request of borrowers with federally backed mortgages without having to adhere to otherwise applicable rules. The April 2020 joint statement also announced that agencies would not take supervisory or enforcement action against mortgage servicers for failing to meet certain timing requirements under the mortgage servicing rules provided that servicers made good faith efforts to provide required notices or disclosures and took related actions within a reasonable time period.
The agencies noted in their announcement that while the pandemic continues to affect consumers and mortgage servicers, servicers have had sufficient time to take measures to assist impacted consumers and develop more robust business continuity and remote work capabilities. Accordingly, the agencies “will apply their respective supervisory and enforcement authorities, when appropriate, to address any noncompliance or violations of the Regulation X mortgage servicing rules that occur after the date of this statement.” However, the agencies will take into consideration, when appropriate, “the specific impact of servicers’ challenges that arise due to the COVID-19 pandemic and take those issues in account when considering any supervisory and enforcement actions,” including factoring in the time it may take “to make operational adjustments in connection with this joint statement.”
The same day, the Bureau released a report titled Mortgage Servicing Efforts in Response to the Covid-19 Pandemic, summarizing efforts taken by the Bureau since the start of the pandemic to respond to the evolving needs of homeowners and CFPB-supervised entities. These responses include: (i) conducting prioritized assessments and targeted supervisory reviews; (ii) issuing reminders to servicers that being “unprepared is unacceptable”; (iii) implementing temporary procedural safeguards to allow borrowers time to explore options before foreclosure; (vi) analyzing consumer complaint data and conducting targeted reviews of high-risk complaints related to pandemic forbearances; (v) analyzing and releasing information relating to mortgage servicers’ pandemic responses; (vi) documenting research on the pandemic’s disproportionate impact on Black, Hispanic, and low-income communities; and (vii) partnering with other federal agencies to create online tools to provide information on CARES Act assistance and protections, as well as providing homeowner outreach materials. The Bureau noted it “will continue to monitor closely the performance of mortgage servicers to prevent avoidable foreclosures to the maximum extent possible and will not hesitate to take supervisory or enforcement action if warranted.”
On November 8, the U.S. District Court for the District of New Hampshire denied a credit union’s motion to dismiss claims concerning its overdraft fees and policies. Plaintiffs filed a putative class action alleging that the defendant failed to properly disclose how it assessed overdrafts in violation of EFTA and implementing Regulation E. According to the plaintiffs, the defendant’s overdraft fee opt-in disclosure did not provide a “clear and readily understandable” explanation of the meaning of “enough money,” nor did it specify whether overdrafts are calculated based on the actual balance or the available balance. The defendant moved to dismiss, arguing that the opt-in disclosure should be read in conjunction with a separate membership agreement that outlines the account terms and discloses the defendant’s use of the “available balance” method to determine when an account is overdrawn. The defendant further contended that it did not violate Regulation E and that it qualifies for EFTA’s safe harbor provision. The court disagreed, ruling that the plaintiffs had plausibly alleged a violation of Regulation E, as it requires the opt-in disclosure to be “segregated from all other information.” Among other things, the court stated that “[c]ountless courts examining virtually identical language have agreed” that language similar to the phrase “enough money” can plausibly amount to a violation of Regulation E’s “clear and readily understandable” explanation of overdraft fees.
With respect to defendant’s safe harbor claim, the court observed that EFTA may provide safe harbor to banks using an appropriate CFPB model clause (15 U.S.C. § 1693m(d)(2)) or a disclosure form “substantially similar” to the Bureau’s Model Form A-9, which states “[a]n overdraft occurs when you do not have enough money in your account to cover a transaction, but we pay it anyway.” The court agreed, however, with the reasoning of several courts that using language identical to that in the A-9 does not necessarily provide safe harbor defeating plaintiffs’ claims where, as here, the plaintiffs “have plausibly stated a claim that the clause from Model Form A-9 was not ‘appropriate’ because the language did not describe [defendant’s] overdraft policy in a ‘clear and readily understandable’ way.”
On November 5, the Illinois attorney general and the Illinois Department of Financial and Professional Regulation (IDFPR) announced a settlement resolving allegations that three companies violated Illinois lending laws by generating payday loan leads without a license and arranging high-cost payday loans for out-of-state payday unlicensed lenders. The AG and IDFPR further alleged that the companies falsely represented their loan network as being “trustworthy,” although the loan terms and conditions did not comply with Illinois law, which violated the Illinois’ Consumer Fraud and Deceptive Business Practices Act. The AG sued the companies in 2014 after the companies refused to comply with a cease and desist order issued by IDFPR, which required them to become licensed. According to the announcement, under the terms of the settlement, the companies are prohibited from: (i) arranging or offering small-dollar loans, online or otherwise, without being licensed by IDFPR; (ii) advertising or offering any small consumer loan arrangements or lead generation services in Illinois, unless they are licensed by IDFPR; and (iii) providing services associated with arranging or offering small dollar loans to Illinois consumers without being licensed by IDFPR.
On November 8, the U.S. District Court for the Eastern District of New York granted preliminary approval for a $38.5 million settlement in a class action against a national gas service company and other gas companies (collectively, defendants) for allegedly violating the TCPA by soliciting calls to cellular telephones. The plaintiff’s memorandum of law requested preliminary approval of the class action settlement. The proposed settlement sought to establish a settlement class of all U.S. residents who “from March 9, 2011 until October 29, 2021, received a telephone call on a cellular telephone using a prerecorded message or artificial voice” regarding several topics including: (i) the payment or status of bills; (ii) an “important matter” regarding current or past bills and other related issues; and (iii) a disconnect notice concerning a current or past utility account. Under the terms of the preliminarily approved settlement, the defendants will provide monetary relief to claiming class members in an estimated amount between $50 and $150. The settlement would additionally require the companies to implement new training programs and procedures to prevent any future TCPA violations. The settlement permits counsel for the proposed class to seek up to 33 percent of the settlement fund to cover attorney fees and expenses.
On November 8, Federal Reserve Board Governor, Michelle W. Bowman, spoke at the “Women in Housing and Finance Public Policy Luncheon” regarding U.S. housing and the mortgage market. Bowman observed that home prices have increased in the past year and a half, stating that “[i]n September, about 90 percent of American cities had experienced rising home prices over the past three months, and the home price increases were substantial in most of these cities,” which “raise[s] the concern that housing is overvalued and that home prices may decline.” She discussed several factors leading to the demand for housing as including (i) low interest rates; (ii) accumulated savings; and (iii) increased income growth. Additionally, she pointed out that mortgage refinancing has surged due to the decrease in long-term interest rates, and that nonbank servicers utilized the proceeds from the “refinacings to fund the advances associated with forbearance.” However, Bowman added that higher home prices and rising rents contributed to inflationary pressures in the economy. Bowman stated that the “multifamily rental market is at historic levels of tightness, with over 95 percent occupancy in major markets,” and she anticipates that these housing supply issues are unlikely to reverse materially in the short term, suggesting that there will be higher levels of inflation caused by housing. With respect to forbearance, Bowman said, “1.2 million borrowers were still in forbearance, down from a peak of 4.7 million in June 2020” on mortgage payments. Bowman stated that, “[f]orbearance, foreclosure moratorium, and fiscal support have kept distressed borrowers in their homes.” Bowman warned that transitioning borrowers from mortgage forbearance to modification may be a “heavy lift” for some servicers. Bowman disclosed that the Fed will be monitoring what happens as borrowers reach the end of the forbearance on mortgage payments and estimates that 850,000 of those in forbearance will reach the end of their forbearance period in January 2022, and “the temporary limitations on foreclosures put in place by the Consumer Financial Protection Bureau will expire at the end of the year.” Bowman recommended that state and federal regulators collaborate to collect data, identify risks, and strengthen oversight of nonbank mortgage companies.
On November 8, the FTC announced the permanent ban of a payment processor from processing debt relief payments and ordered payment of $500,000 in consumer redress. According to the FTC’s complaint, the payment processor and its owner (collectively, “defendants”) allegedly processed roughly $31 million in consumer payments on behalf of a student loan debt relief operation charged by the FTC in 2019 for allegedly engaging in deceptive practices when marketing and selling their debt relief services. As previously covered by InfoBytes, the FTC claimed the operators (i) charged borrowers illegal advance fees; (ii) falsely claimed they would service and pay down their student loans; and (iii) obtained borrowers’ credentials in order to change consumers’ contact information and prevent communications from loan servicers. The FTC alleged the defendants processed payments from tens of thousands of consumers even though they were aware of numerous issues with the scheme and had received complaints from consumers and banks. The FTC further alleged that the defendants continued to process payments until the FTC took enforcement action against the operation.
Under the terms of the settlement, the defendants are permanently prohibited from processing payments for debt relief services and student loan entities and are banned from processing payments for any merchant unless there is a signed, written contract. The defendants are also required to screen prospective high-risk clients to determine whether such clients are, or are likely to be, engaging in deceptive or unfair activities. In addition, the settlement imposes a $27.5 million judgment against the defendants, which is largely suspended following the payment of $500,000, due to the defendants’ inability to pay the full amount.
On November 8, the New York governor signed several pieces of legislation relating to consumer protection. Among those, S.153 /A.2832 enacts The Consumer Credit Fairness Act, which expands consumer protections against abusive debt collection by, as explained by NYDFS acting Superintendent Adrienne A. Harris, “address[ing] known predatory debt collection practices, barring an abusive common tactic engaged by predatory debt collectors which is to sue on time-barred consumer debts for which they lack even the most basic of documentation.” Certain parts of the Consumer Credit Fairness Act are effective immediately. S.4823/A.3359, effective 30 days after being signed into law, prohibits utility companies from engaging in harassment, oppression, or abuse when coordinating with a residential customer. According to the press release, this legislation responds “to various unscrupulous practices that utility corporations engage in, such as creating a ‘payment agreement’ with customers that encourage customers to take large down payments in exchange for utilities such as energy not being shut down.” S.1199/A.5838 requires the Public Service Commission to have at least one member who is an expert in consumer advocacy. It will also go into effect 30 days after being signed into law.
On November 5, the California Department of Financial Protection and Innovation (DFPI) issued a fourth draft of proposed regulations implementing the requirements of the commercial financing disclosures required by SB 1235 (Chapter 1011, Statutes of 2018). As previously covered by InfoBytes, in 2018, California enacted SB 1235, which requires non-bank lenders and other finance companies to provide written, consumer-style disclosures for certain commercial transactions, including small business loans and merchant cash advances. California released the first draft of the proposed regulations in July 2019, initiated the formal rulemaking process with the Office of Administrative Law in September 2020, and subsequently released second and third rounds of modifications in August and October of this year (covered by InfoBytes here, here, here, and here). The fourth modifications to the proposed regulations follow a consideration of public comments received on the various iterations of the proposed text. Among other things, the proposed modifications amend the term “average monthly cost” to mean the average total amount paid by the recipient (for periodic and irregular payments) over a contract’s term divided by the number of months specified in the contract. Providers may divide the number of days in the contract term by 30.4 to determine the number of months in the contract term. This calculation may also be used to determine the “estimated monthly cost.” Comments on the fourth modifications must be received by November 22.
On November 5, the CFPB published a notice in the Federal Register seeking public comments on recently issued orders to six large U.S. technology companies requesting information and data on their payment system business practices (covered by InfoBytes here). According to the notice, the Bureau invites comments from “any interested parties, including consumers, small businesses, advocates, financial institutions, investors, and experts in privacy, technology, and national security.” The notice is “one of many efforts within the Federal Reserve System to plan for the future of realtime payments and to ensure a fair and competitive payments system in our country.” Comments are due by December 6.